What do investors look for to invest in a startup?
“I like to invest in the space where there is no ‘me too’ companies and hence no competition. We first come up with the idea thesis and then find the founders to execute on it and that works out well. ” – Krishnan Ganesh (serial entrepreneur and angel investor.)
There can be many reasons why investors invest in any particular business. We talk about investors here in general. We talk about what could be the potential reasons because of which investors choose to invest in any business.
Despite the wide variety of start-ups available, there are certain businesses which attract investors more. There are certain things that investors like to check before they invest either Money or time.
- What is the selling product : one should be able to describe the business in simple and concise manner. If you cannot, it might give the view that you are not focused yourself.
- What is the unique value proposition: The investor will only be interested in your project if you offer something unique. Any aspect that other marketeers do not posses, will attract the investor to you.
- Dynamic market opportunity : what makes your business better than others in market? If the market is new, the investor will want to know what factors drive the growth. He will be interested in knowing whether the business is adaptive to change.
- Executive team’s potential : A potential investor will be keenly interested in knowing what kind of domain expertise does the team have that makes them an authoritative figure in the market. The investor will evaluate all the strengths before taking any decision.
- Team’s background and experiences: The investor will be keen to know how the team came together and what all they have been through. A strong team makes the base of a successful business.
- Founders’ chemistry: Its is important to get along well with the person you are going to share a business. The co-founders have to undergo massive amount of stress on daily basis. Therefore, the investor will also evaluate the chemistry between the co-founders. he will have a keen eye on their determination.
- Cost structure and revenue streams : Types of variable costs and fixed costs that you must incur. And what are the streams to generate revenue. Give facts and statistics in order to convince the investor that your startup has an engaging market and you are determined to make it a success.
- Profit making capability: Investors are interested in numbers. They are interested in the returns and cash flows. No, they do not expect to earn profit or have positive cash flows from the first month. But if your revenue model is profitable in the long run, they will be expecting some parameters.
- Critical resources that you need : The investor will definitely want to know where and how will you be using his money. He will want complete accountability on your part. He will want to know what are the resources that are critical, whether you want more workforce or raw material.
- The channels you plan to sell in: channels of distribution you want to take can be virtually segmented in online and offline divisions (mass retail or shops).
- How to build customer relations : It is one of the most important things in a budding business and yet it is undervalued most of the times. This is to make sure that your customer is satisfied and once a person comes to you, you retain him forever. This is basically attached to marketing and more emotional side of the company.
If the investor is impressed, then he will be more than willing to put his money in the business. If there is some chemistry between the founder and the investor, it may act as a contributing factor and may just transverse some of the above points. Raising funds can be a overwhelming task, but you can hope to get ahead of others by addressing these points in your next pitch. Even if doesn’t land you a deal, but helps you to pave the way for second meeting, consider it job half done.